AERO BUSINESS

Croatia - an important target for low-cost airlines

What is the situation right now and the future for Croatia when it comes to aero business? We discussed it with Robert Tasiaux from A.T. Kearney, one of the speakers at the Aviation Business Arena, Central and Southeast Europe forum organized by Infoarena in November 2011 in Zagreb, Croatia. Key people in that industry,  Directors of regional airports and other local and foreign experts in Aviation business were present and discussing different aspects and challenges that aviation business is facing at today's market.

 

Air transport is one of the world's most powerful industries, which enables the development of global international business and tourism. The economic and social effects are very strong: 32 million jobs (indirectly), or 5.5 million directly participate in global GDP to 7.5%, 25% of sales is dependent on air transport, while almost 40% of international tourist arrivals are realized in air traffic.

 

Mr. Tasiaux works for A.T. Kearney, a global management consulting firm, focusing on strategic and operational CEO-agenda concerns .While the head office is in Chicago, USA, the firm runs 56 offices in 38 countries. Mr. Tasiaux leads the Firm's Northern European Transportation practice. From 1992 to 1997, he was based in Hong Kong where he was in charge of the Firm's Greater China operations as well as its Asia-Pacific Transportation practice. Prior to that Mr. Tasiaux was based in the Firm's Singapore and Chicago offices. In aviation, Mr. Tasiaux and his practice have worked extensively for airports and air carriers. The scope of his work includes corporate strategy, privatization and M&A, regulation, business unit strategy (e.g. catering, freight, retail, ground handling, and fuel distribution), expansion and investment strategy/process, quality, punctuality, process and operations improvement, and procurement.

 

How does Croatian Aviation fit into a Regional (west Balkans) - SEEurope - Europe - Global strategy?

Croatia is one of the most attractive tourist destinations in the region, together with Greece. Regarding the business segment, Croatia is one of a very fragmented list of countries in the Region, with no large center except for Istanbul, which already ranks close to the largest European hubs and is growing fast. Most incumbent airlines in the Region seem to be struggling financially and it is not clear what will emerge from that.

 

What is the biggest obstacle in starting a new airport?

Cost, administrative approvals, and attractiveness to airlines. Airports are hugely expensive investments, including runways, terminals and equipment, and access. This being said, airports have often been even more expensive to build that they could have been, due to a "cathedral-building" bias among their public sponsors.
They also require expansive land and ways of access, and are blamed for generating noise for neighboring communities. As a result pressure from environmental groups is usually quite strong, and it increasingly takes years to get airport extensions approved by local governments.
Attractiveness to airlines depends on the traffic going from/to the region, the presence or not of competition, and a clear view of the role of the airport. Traffic forecasts too often rely on GDP-linked formulas that fail to recognize how air passenger and freight networks behave.

 

Do you think that Croatia airports currently (and for future growth) have enough capacity and are the current airports......in the right location(s)?

I haven't studied the Croatian airport landscape in enough detail to answer that, but I hear that airports such as Split are suffering from severe under-capacity in peak travel periods.

How is Croatia positioned to transition into the EU; in regards to EU regulations regarding air travel, etc...?

Croatia is on the path for full EU membership and as such will be subject to EU aviation regulations, including a liberalized aviation industry. In this set-up the government will no longer be allowed to fund its airline unless it can demonstrate that a private investor would invest under the same conditions. Practically, money-losing EU national carriers have usually had "one last bail-out" agreed by the EU Commission, after which they had to stand on their own, or fail (or find a savior who would acquire them, assuming they could be salvaged).
EU membership will also likely lead to regional development aid, possibly to finance new airports and/or extensions.

Infrastructure is key for expansion and continued sustainability in the market. How do you see Croatia in this regard; and compared to the rest of the region? Additionally, with Croatia awaiting accession and being "the new kid on the block"; will Croatia have a fair opportunity to take advantage of receiving EU funding for these initiatives?

I would expect so although current public funding might make it somewhat more difficult than for its predecessors. I expect that while the focus of EU land transport infrastructure has historically been on road, it will gradually shift towards rail, among other things for sustainability reasons. This means that railways in the Region will benefit from the investments required to modernize their infrastructure and equipment, but will also need to go through deep restructuring to face a liberalized rail business (for now limited to freight and international passengers).

Do you see low-cost airlines (Ryan, Wizz, etc...) completing more saturation into the Croatian market either in 2012 or after EU accession?

 

Yes, for sure. Ryanair has recently announced ambitious growth plans and has singled out Eastern Europe as a target for growth. Given the attractiveness of the Adriatic as a vacation destination, I would expect Croatia to be an important target. Wizz has its center of gravity in the Region, so, assuming financing is available, one would expect to see it focus on SEE as well, including Croatia. Other airlines will likely join in if their own customer base travels in large numbers to Croatia (eg Lufthansa).

 

China is projected to have approximately 200 million travelers within the next several years. How do you see this impacting SEEurope and do you see Croatia as being a potential entry portal/hub for them?

The Chinese are indeed beginning to be significant travelers in Europe in general and around the Mediterranean in particular. As for them creating a hub in Croatia, I doubt it. A hub carrier needs substantial "captive" (in general, local) market around its hub, using "captive" passengers to help fund its feeder operations. Most cities in the region are too small to entertain the idea of a significant hub, except Istanbul.

 

Transportation (air, rail, bus and ferry) and tourism go hand in hand. Do you see the cooperation between those two industries sufficient? Have they evolved enough to adequately support each other?

Clearly no.
Short distance access: typically bus and rail, but rarely top notch in terms of frequencies, convenience, comfort and cost except in a few cities (e.g. Heathrow Express in London).
Long distance access and feeding: Rail and Air are complementary particularly High-Speed Rail. Rail substitution to Air has happened on routes served by HSR (e.g. Paris-London, Paris-Lyons, Paris-Brussels, Brussels-London, Madrid-Seville etc.) with Rail capturing around 80% market share. This is not necessarily bad news for airlines, who except for LCCs struggle to have short-haul routes profitable. And, in congested airports, it frees up valuable slots that can be used for profitable long haul routes. A few major airports now have HSR access on the airport site, but that is still in minority in Europe, including in Western Europe.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gordana Popović, our Editor, Robert Tasiaux, Partner (Belgium), A.T. Kearney, Philip Hofbauer, Consultant Airline Restructuring, Lufthansa Consulting, Žarko Sivčev, Advisor COO, Eurocontrol